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What’s the difference between bank and dealership car loans?

With so many different financiers available, finding the right car loan can be an overwhelming task. Deciding whether to seek finance from a dealership or bank can a touch decision, as the best option is very much dependent on your individual circumstance.

Don’t be afraid to ask for help – Positive Lending Solutions is here to cut through the jargon and small print to find the best car loan for you.

Financing a car: the options

When it comes to financing a car, there are two main options

Dealership finance

Here's where a dealer forwards information about you to potential auto lenders.

These lenders can then choose whether or not to finance your loan and quote an interest rate to the dealer to finance the loan. This is referred to as the ‘buy rate’.

Note that the buy rate may not be the rate that you end up paying to the dealer in the end.

Bank or credit union loans

Often referred to as a direct loan because you are going directly to bank, credit union or finance company to apply for finance.

These lenders will look at your credit score, the type of vehicle you’re looking to buy, as well as your debt to income ratio.

You’ll generally be given pre-approval for your loan, which gives you an estimated guide to the interest rate, loan term and maximum loan amount you can expect.

Financing a car: difference between interest rates

When considering a dealership or a bank to finance your car loan, you’ll want to think carefully about the interest rates that come with each option.

Dealership Interest

It’s useful to know that dealerships may be able to negotiate interest rates - a liberty banks don't usually have.

You should be aware that your 'buy rate' may not be the final rate you'll be charged. Often it’s 1 or 2% more – with the additional amount pocketed by the dealership for their involvement.

Bank or Credit Union Interest

With banks or credit unions, fixed loan interest rates are solid. This means the interest rate you're quoted is what you should expect to pay.

Note that fixed loans are quite different to variable loans, which are slightly lower, and fluctuate periodically with the market.

If you’re struggling to figure out which option could work best for you at this point, remember that Positive Lending Solutions is always on hand to talk you through how we can act as a mediator to find the very best loan for you. Your interests are at the heart of everything we do and we want to make the car loan process as positive and efficient as possible for you.

Other factors to consider

It’s important to know as much as possible about the different types of car loans and how they can work for you.

If you’re concerned about the borrowing amount on different car loans, it’s useful to ask for expert help.

The amount that you can borrow will depend on your individual circumstances and factors such as your credit rating. Be wary of any dealers offering car loans whatever your credit – these can often have extremely high rates of interest and are often simply too good to be true.

Financing a car and finding the best car loan for you does take time and research. You should never take the first car loan that is offered to you and it’s always worth checking out what you can get with both your dealership and your bank before you make a decision.

Ask for help

Did you know that at Positive Lending Solutions, our average customer saved 17% on finance? That’s a lot of money when you consider the amounts you could end up paying out for your car loan – whether you choose a bank or a car dealership.

Getting expert help really can save you money in the long term. Call 1300 722 210 today and help find the best car loan for you.

Tom Caesar is the Managing Director of The Positive Group, a group of Australian financial services companies offering a broad range of finance to clients Australia wide. The Positive Group assist clients in the areas of car finance, mortgages, insurance & wealth management. Tom has been in car & asset finance for over 10 years. Tom regularly contributes articles on car finance, insurance, technology and business growth, drawing on his experience of starting his own brokerage in 2009.